Would an Amortised Grant Funding Model Work? These Associations Think So
Housing associations are urging the government to gear the allocated the £2.5bn funding package announced in the recent spending review toward an amortised grant model designed to alleviate financial pressures currently hindering development.
Discussions continue between sector leaders and policymakers in search of a solution to the interest cover squeeze that is limiting new projects.
The challenge is especially pronounced for associations in London, where restrictions on upfront borrowing are making expansion increasingly difficult.
On Wednesday, Rachel Reeves unveiled plans for £2.5bn in “low-cost loans” for social housing providers, with further details expected in the coming weeks.
While this announcement marks a significant commitment, industry leaders hope to see funds deployed in a way that effectively supports long-term affordability.
The Amortised Grant Model: A Strategic Shift
A potential fix, recommended by the G15, involves an amortised grant or ‘repayable subsidy’ scheme—where housing associations receive larger upfront grants to support development but repay them later.
This approach reduces the initial debt burden, allowing associations to manage lower interest payments and maintain a healthier interest cover ratio, which determines their ability to meet financial obligations under lending agreements.
Government officials have also shown interest in this model due to its repayable nature, which could allow the subsidy to be classified as an asset on the public balance sheet rather than as direct expenditure.
Challenges with Current Affordable Housing Funds
While the £39bn set aside for the next Affordable Homes Programme is a substantial investment, it is unlikely to resolve the immediate interest cover constraints.
Not only will it take time for funds to be allocated, but the per-home grant rate may not be sufficient to significantly reduce borrowing needs, leaving housing associations facing continued financial pressure.
A Key Policy Recommendation
The amortised grant proposal was central to Housing Today and G15’s inaugural State of the Capital report, which stemmed from insights shared at the Housing Today Live conference in Westminster last year.
Several other recommendations from the report have also gained traction. The spending review included provisions for equal access to building safety funding for social landlords, responding to one of the report’s key suggestions.
Additionally, Reeves has announced a consultation on reintroducing rent convergence, another policy area highlighted in the analysis.
Government’s Commitment to Housing Finance
In a letter to social housing providers, housing minister Matthew Pennycook reaffirmed the government’s commitment, stating:
“The spending review also sets out that there will be £2.5 billion in low-interest loans to support new development, to complement commercial lending.
“We will be working closely with the sector and with lenders to design this and will set out more detail in the coming weeks.”
As the discussions evolve, housing associations remain focused on ensuring the funding is deployed in a way that maximises development opportunities while maintaining financial stability in the sector.
